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However it warned that over half of the cost improvement was due to favourable but potentially temporary exchange rate movements, while there was also a risk of rising prices in the months ahead.

The report also said that Ireland's labour costs remained high when compared to other European countries.

Responding to the report, Minister for Enterprise Richard Bruton said there needed to be a careful examination of labour tax.

He said the Government must keep to its commitment of not increasing income tax rates and should begin to reduce them for average earners as soon as possible.

“ As this report rightly points out, the marginal rate of income tax, at 52% for employees and 55% for the self-employed, is higher than in most of our competitor countries,” he said. “Tax rates of over 50% on average incomes damages inward investment and entrepreneurship, and makes too many people question whether they would be better off not working at all.”